A 50 per cent reduction in Air Passenger Duty in Scotland could add £1 billion to Scotland's economy and add 3,800 jobs by 2020, according to a report commissioned by Edinburgh Airport.

The report, compiled by consultants York Aviation, based its calculations on an increase in air travel resulting from a reduction in the tax and the increased attractiveness of Scotland as a hub, including “potential for Scottish airports to attract additional traffic from English airports”.

The Smith Commission recommended Air Passenger Duty (APD) be devolved to the Scottish Government, though the decision ultimately rests with legislation being passed by the UK government.

York Aviation's report suggests Scottish airports could lose up to one million passengers a year if APD is not reduced by at least 50 per cent, which would see Scotland's economy lose up to £68 million a year in lost tourism revenue.

The report suggests around 700,000 more passengers would come through Scotland's airports in the first year APD was cut, rising to around 900,000 after five years.

The report has based its economic impact calculations with respect to the direct operational impact on airports, tourism activity and the impact on increased connectivity for business travellers, which it argues would also drive improvements in long term productivity.

“This research identified that a 10 per cent increase in the number of business passengers relative to GDP would result in a 0.5 per cent increase in total GDP in the long term,” the report states.

Adding: “However, it should be recognised that this may to some degree be spurious as it is very hard to know whether the increase in GDP will lead to more employment or whether it will simply increase output per head.”

APD was first introduced in 1994 at a rate of £5 for European destinations and £20 elsewhere, but since 2007 short-haul tax hikes have risen 140 per cent and by between 200 and 325 per cent for long-haul services.

The UK aviation tax rates are now the highest of any major European country and raised £2.9 billion in tax in 2013/14, including around £200 million from Scotland.

However, Scotland's airports have reported steady passenger growth in the period 2011 to 2014, with Aberdeen reporting its “busiest ever year” in 2014, Edinburgh Airport breaking the 10 million passenger barrier and Glasgow recording its busiest year since 2008.

And all three of Scotland's main airports reported growth in international passenger numbers in that timeframe. The York Aviation report suggests Prestwick Airport, which the Scottish Government was forced to rescue in 2013 in a nominal £1 deal with New Zealand infrastructure firm Infratil, would see the “biggest gain” from a 50 per cent reduction in APD.

It suggests the “ultra low fares offered by Ryanair combined with a heavily price sensitive, leisure focused market results in significant stimulation,” which it estimates would see the airport gain “around 0.3 million passengers” by 2020.

The report adds: “Both Edinburgh and Glasgow make gains but these are not nearly so dramatic in percentage terms, reflecting the more balanced airline portfolios and the more mixed nature of demand.

“The airports gain 0.3 and 0.2 million passengers respectively.

“It should also be noted that Glasgow’s gains are to some degree moderated in the long term by the resurgence of Prestwick.”

Aberdeen International Airport is expected to only see limited gains from a reduction in APD because of its “very high proportion of price insensitive business traffic”, which is in the main, “less price sensitive” that leisure passenger traffic.

Inverness Airport is estimated would add around 20,000 passengers by 2020, based on a 50 per cent cut in APD.

Edinburgh Airport chief executive, Gordon Dewar, said: “We‘ve long argued that APD is a tax on Scotland’s ability to compete with European airports of or size, and our economy is footing the bill in lost jobs and lost opportunities.

“It’s also damaging the ability for our passengers to travel and to take advantage of the amazing connectivity we have from Edinburgh.

“Our report shows that the economic benefit of a reduction will outweigh any lost tax revenues.

“It’s therefore reasonable for passengers, airlines and the tourism industry to have some certainty on when this regressive tax will be reduced, and to know whether it will eventually be scrapped.”

Mike Cantlay, chairman of VisitScotland, added: “Scotland is a must-visit tourism destination and, every year, we welcome millions of visitors from all over the world.

“There is no doubt, however, that Air Passenger Duty is acting as a major deterrent to many potential visitors.

“Few other EU countries levy APD, so this places Scottish tourism at a competitive disadvantage.

“We are pleased that, as of May, APD will no longer apply to under 12s and that fiscal authority for APD will ultimately be transferred to the Scottish Government, as recommended by the Smith Commission.”